Severstal Announces 2019 Capital Investment Programme
Severstal plans to invest approximately 95.7 billion rubles in 2019, focusing on the key areas of the Company’s updated strategy disclosed during its Capital Markets Day in November 2018 – superior client experience, cost leadership and embracing new opportunities – and aimed at further strengthening its financial performance, maximising value creation and enhancing shareholder returns.
Severstal Russian Steel
Severstal will invest approximately 64.8 billion rubles into its Russian Steel division in 2019, of which 48.6 billion rubles will be committed to development projects.
The most significant projects in 2019 will be the construction of the new Blast Furnace #3 (expected to be launched in 2021), the Coking Battery #11 (to be launched in 2022 to replace batteries #8 and #9) and the flat steel production development programme aimed at improving the Company’s product mix. Cutting-edge technology will allow the Company to produce more high-value added and innovative products and solutions, improve customer care and reduce its environmental impact.
Severstal Russian Steel will invest 16.2 billion rubles in maintenance, environmental and health and safety projects in 2019.
Severstal will invest approximately 30.9 billion rubles in its Resources division in 2019, of which 18.9 billion rubles will be invested in asset development.
One of the main investment areas within Severstal Resources is development of Yakovlevskiy mine which will receive investment of 8.3 billion rubles in 2019. This will allow the Company to upgrade its production capacity to 5 m tonnes.
Among other significant projects are construction of a conveyor for run-of-mine transportation at Tsentralniy pit, redesign of the boiler-house aimed at switching from oil to peat fuel, increasing pellet quality by introducing lime hydrate at Karelskiy Okatysh etc. Besides, the company will continue investing in restoring volumes at Vorkutaugol.
Severstal will continue to focus on safety and ecology in 2019 and boost its investments in these areas. The Company plans to invest a further 1.1 billion rubles into safety improvement measures (almost half of which will be invested into health and safety initiatives – including digital systems – at Vorkutaugol), and an additional 827 million rubles in environmental projects.
The Company will commit 5.7 billion rubles of investment capital to digital and IT projects focused on at further improving operational excellence and enhancing product quality and customer service.
Alexey Kulichenko, CFO of Severstal, commented:
“As a global efficiency leader with a strong track record of delivering progress, we are now striving for further growth, and can see many growth opportunities. Therefore, most of our capital investment programme (around 75%) will fund development projects focused on achieving a significant cost advantage in basic steel products, improvements to our product-mix and services and growth in both mining and steel volumes. At the same time, we remain committed to our "smart capex" approach, which requires a minimum of 20% IRR for every investment project. In order to maximise investor value, Severstal will be using "Adjusted FCF" for the dividend calculation during the intensive stage of the investment programme, which will return to historical levels after 2022. Any capex which exceeds the base-line level of $800m will not be taken into consideration when determining the level of dividend payout”.
The planned investments are preliminary estimates and amounts are subject to adjustments dependent on FX changes. The majority of the Company’s expenditure in 2019 will be in rubles.